TikTok just like the Sputnik

Sputnik
Michele Caprini
10 Aug 2020

On 6 August, President Trump signed an executive order banning TikTok from operating in the U.S. within 45 days of the official communication. The ban concerns “any dealings by any person, or with respect to any property, subject to the jurisdiction of the United States, with ByteDance(the Chinese company that owns the social media platform) “or its subsidiaries”.This is because the rise of “…mobile apps owned by Chinese companies is a threat to national security, foreign policy, and the U.S. economy”.

Apart the cold war tones that, almost fifty years after Nixon’s visit to China are still a valuable electoral tool throughout the West, the U.S. administration wants to set the rules when it comes to cyberwarfare for easily identifiable strategic and market reasons.

Social network and retail

TikTok boasts two billion downloads from all over the world, and holds the all-time popularity record among teenagers and very young adults, and, like all self-respecting social networks, instantly produced its highest-paid stars.

In the United States, the teenagers’ favourite social network became the protagonist last June of a stunt to sabotage Trump’s Tulsa rally, effectively causing the failure of his public event.

TikTok’s valuation (about $100 billion dollars after the latest capital increase) reflects its rapid spread. TikTok is today in seventh place in the world ranking of social networks (Statista data) and has about 800 million members, 100 of which in the United States, which obviously affect purchasing behaviour.

This factor is crucial for assessing the strategic weight of social networks. The data published at the end of 2019, and thus before the pandemic that further amplified its importance, are eloquent in this regard.

71% of consumers take greater account of well-referenced products on social media (Hubspot); they influence 47% of Millennials’ purchases (Deloitte); 90% of online brands use social media to increase brand awareness (Hootsuite); 80% of active online consumers use social media for connecting to brands (Maybe Tech); online stores with a presence on social networks sell on average almost a third more than competitors not present (Big Commerce).

Microsoft, TikTok and the centrality of social networks

Microsoft is Trump’s preferred partner for the acquisition of TikTok’s operations in the USA, in a deal that will likely include TikTok’sCanada, Australia and New Zealand as well.This could already take place by the proposed date of 15 September, but the complexity of the operation is in the value of the transaction, distorted by the presidential order and the court battles that will follow. Beijing condemned the American manoeuvre as a “political manipulation and repression”.

The resolve of Microsoft and Trump reveals the new centrality of social networks on the market. Apart from the concerns about privacy and security, moreover diminishing, which act as a barrier to entry, the orientation of consumers is increasingly favourable to the use of these platforms in their shopping journey.Customer engagement, product research, information collected from other users and direct purchase are of keen interest to an ever-increasing share of the world market, from 13% to 43% depending on the generational groups (Global Web Index data).

Not to mention, of course, the huge amount of data useful for profiling existing or potential buyers, which, given the average age of TikTok users, is in perspective one of the most interesting factors.

The Clean Network program

In the plan presented by the U.S. Secretary of State, Mike Pompeo detailed five new lines of effort for the so-called ‘Clean Network’. Clean Carrier: to ensure untrusted Chinese telco operators are not connected with U.S. telecommunications networks.Clean Cable: to prevent undersea cables that ferry internet signals from being compromised by China.Clean Store: to remove Chinese applications from U.S. mobile app stores.Clean Cloud: to prevent storing data on servers accessible to companies such as Alibaba, Baidu and Tencent. Clean Apps: to prevent Chinese smartphone manufacturers from making available, or pre-installing, on their devices apps considered unsafe. 

The American delay

On this last point, Mike Pompeo makes a direct reference to Huawei: “These companies should remove their apps from Huawei’s app store to ensure they are not partnering with a human rights abuser.”Pure ideological junk, the same as that being used against TikTok in an attempt to conceal the real problem: the delay of American technology compared to China (and often also to Europe) in the field of telecommunications.

An easy demonstration of this very point is the embargo against Huawey, declared due to a “national emergency” in May 2019 and recently extended. The political and legal events that followed can be easily explained with a tweet from Trump on 21 February.“I want 5G, and even 6G, technology in the United States as soon as possible. It is far more powerful, faster, and smarter than the current standard. American companies must step up their efforts, or get left behind”. The unnamed leading competitor is, of course, China.

Clearly, the problem is not in the smartphones but in Chinese technological leadership in this strategic area.If Huawei is among the world leaders of 5G, another Chinese telecommunications giant, ZTE, is according to WIPO (the World Intellectual Property Organization) among the top three companies in the world in terms of patents filed. More than 33,000 applications approved, of which more than 2,000 relate to 5G, the sector in which it sets the pace.

Tencent

In its war against Chinese technology companies, in addition to the most elementary market ethics and consumer rights, another casualty of the Trump administration is WeChat, probably the most advanced digital services platform in the world, also in this case owned by China (Tencent).The effect on the market of Trump’s action did not take long to show itself: shares of Hong Kong-listed WeChat plunged about 10%.

However, President Trump’s game against Tencent is anything but easy to play. This due to the size of the company, comparable to Facebook in terms of capitalisation; for its shareholding in some of the most important American gaming companies and in Snap (which controls Snapchat, a messaging app more popular than Twitter with 400 million daily users); for its video streaming agreements with the most important American professional sports; for the widespread presence of its software in the Apple and Google offerings.

Back to the Sputnik

In the ‘Made in China 2025’ plan, presented two years ago, Xi Jinping’s China affirmed its desire to evolve from the status of ‘world’s factory’ to a world leader in technological innovation.

This has created a situation quite similar to the syndrome induced by the Sputnik, the first artificial satellite sent by Russia into orbit around the Earth on 4 October 1957, followed by the first human mission in space with Jurij Alekseevič Gagarin aboard Vostok 1 on 12 April 1961. This resulted in Washington’s awareness of its technological delay compared to Moscow and convinced many U.S. policymakers to make the huge investments that brought the United States on the moon.

Sixty years later, history repeats itself. Lagging dangerously behind in the global telecommunications race, for Trump’s America, the folkloristic and violent attempt is to rewrite the market rules, juggling between protectionism and forced incentives for innovation. In short, TikTok like the Sputnik and Vostok 1, but it remains to be seen if also this time there is a moon and if, and how, it can be reached.